The Nakamoto Upgrade Will Drive Ordinals' Growth. Here's How.

The Nakamoto Upgrade Will Drive Ordinals' Growth. Here's How.

The Nakamoto Upgrade Will Drive Ordinals' Growth. Here's How.

Bitcoin Network

7 min

Jun 20, 2024

The Bitcoin blockchain has hit multiple growth milestones in the past couple of years, such as the rise in demand for Ordinals. Even more milestones are on the way, including the Nakamoto upgrade that is set to not only improve transaction processing on the Stacks L2 network, but also on the wider Bitcoin network.

Stacks' growth and acceptance gained momentum in February 2023—from a TVL of around $8 million to over $100 million within a year. This has propelled innovations like Bitcoin NFTs to thrive.

According to a CoinGecko analysis, the top 10 Bitcoin NFTs have surpassed a $1 billion market cap. Not just that, but data from Dune Analytics shows that the total number of Ordinals inscriptions exceeded 67 million at the beginning of June 2024. 

In this article, we'll discuss how Stacks' Nakamoto upgrade will boost the growth of Ordinals in the coming years. 

A Recap of Bitcoin Ordinals 

Casey Rodarmor, a Bitcoin developer, launched Bitcoin Ordinals protocol in January 2023. This protocol allows inscribing non-fungible tokens (NFTs) equivalents on Bitcoin's smallest denomination, satoshis (1 BTC = 100 million satoshis).

The introduction of Ordinals allows the inscription of digital content to satoshis, such as images, music, videos, and more. This digital inscription process facilitates the possibility of creating rare and unique assets like NFTs on the Bitcoin blockchain. 

An Overview of the Nakamoto Upgrade 

The Stacks Nakamoto upgrade is an initiative to improve its blocks security and transaction speed. Launching in August, this upgrade improves the overall capability of the Bitcoin ecosystem by allowing developers to build projects for the growing crypto community.  

Stacks introduces an ocean of opportunities on the Bitcoin blockchain by facilitating fully expressive (enhanced functionality to power dApps) smart contracts. The upgrade preserves Bitcoin’s USPs, such as security, while expanding its utility from being a mere store of value. 

Nakamoto Upgrade's Impact on Ordinal's Growth 

The Nakamoto upgrade will play a crucial role in the Ordinal's growth by fostering the components such as:

Reduced Block Times

The Nakamoto upgrade is expected to reduce the time needed to create Stacks blocks significantly. Here, the existing block time, which is about 10 minutes (due to being coupled with Bitcoin), can be brought down to approximately five seconds following the update.

Stacks can benefit from the faster block times as their block production is not tied to the Bitcoin blocks after the update. Moreover, this detachment from the Bitcoin block also reduces the time to confirm Slacks transactions.  

The Proof of Transfer (PoX) consensus mechanism helps Slacks achieve this reduced block times. Here, miners use the stacking method, where STX tokens are locked up to produce and secure the Stack blocks.

Nakamoto upgrade started rolling out on April 22, 2024, at Bitcoin block 840,360 in a two-step process.  The total number of Ordinal inscriptions on the day Nakamoto started to roll out was over 66 million. This inscription rate is rising with time, indicating the positive impact of this upgrade on Ordinals.

The rise in Ordinal inscriptions has caused congestion on the Bitcoin network, leading to energy demands, slower transaction speeds, and higher fees. Due to its limited block size and decentralized nature, storing images or data directly on the Bitcoin chain also carries a premium. Only the most valuable or important data should be stored on Bitcoin L1.

The Nakamoto upgrade with reduced block speed facilitates the Bitcoin NFT community to opt for Stacks NFTs, reducing the burden on the Bitcoin mainnet while supporting the parallel growth of Ordinals. 

The increased block speed solves one of the biggest challenges Stacks users and developers face. Improved block time with the Nakamoto upgrade can translate to faster transactions and greater adoption of Ordinals.

Improved Security 

With the Nakamoto upgrade, Stacks aims to make its network as secure as Bitcoin's while ensuring near-instant block finality. Implementing 100% Bitcoin finality safeguards the reversal of Stacks transactions, guaranteeing their reliability and immutability.

Before Nakamoto, Stacks functioned under its security budget. The history of Stacks chains was considered to finalize the Stacks transactions. However, this finalizing process carried security risks as an attacker could potentially rewrite the transaction history by outspending the Stacks miners.

Nakamoto upgrade prevents Stacks from forking independently and mandates miners to build at the protocol level. This upgrade prevents the attacker from changing the history and makes Stacks transactions irreversible and as final as Bitcoin transactions. 

The global investment firm Franklin Templeton posted on X supporting Ordinals and Bitcoin's layer 2 solutions, mentioning their importance in addressing Bitcoin's economic security problems and increasing BTC's utility from a mere store of value. Acceptance from financial giants will be vital for Ordinals to grow towards the next level. 

This implementation of 100% finality enables the nodes to participate in the Bitcoin network's inherent security framework. This improved security feature safeguards the Stacks' network against potential attacks, making it safer for users and developers. 

The strengthened security after the implementation also facilitates users' interest in Ordinals. With this upgrade, Ordinals also gains security, adding more trust from the NFT community and leading to its growth. 

Newer Ordinal Use Cases 

Nakamoto's upgrade improves scalability, block speed, and security, resulting in an overall hassle-free developer experience. The increase in speed of the block times paves the way for adding blockheight parameters within the smart contracts. Nakamoto upgrade uses Clarity-version 3 to address the increased block speed.

A fast-emerging fascinating use case is the idea of Bitcoin-based Decentralized Autonomous Organizations (DAOs).

By enabling the inscription of arbitrary data onto individual satoshis, Ordinals can represent membership tokens, voting rights, or even the rules and logic that govern the DAO's operations.

The total number of decentralized autonomous organizations (DAOs) surpassed 50,000 as of June 2024, with a total treasury valued at over $28 billion. With the Nakamoto upgrade, developers can now confidently start working on the untapped Bitcoin DAO space to expand the potential of the Bitcoin ecosystem.

Developers can build DAO projects that require users to hold Ordinal NFTs and STX tokens to become members. This collaborative approach helps to foster the growth of Ordinals, Stacks, and Bitcoin DAOs. 

The improved developer-friendly interface and tools help attract more developers to join and create Bitcoin-based projects. The increase in the Bitcoin-based developer community will, in turn, help boost the growth of the Ordinals and the Bitcoin ecosystem. 

Improved Incentivisation 

With the rollout of the Nakamoto upgrade, Bitcoin’s incentive structure has also been updated, benefiting multiple actors. These include:

  • Stackers: As a vital part of the Stack’s consensus mechanism and helping improve security, stackers are eligible for more rewards after the update. 

  • Miners: The Nakamoto upgrade has reshaped miners' incentives beyond transaction fees. The new sorting process enables fair bidding and consistent participation, encouraging active engagement in the network.

  • Node Operators: Faster block times add more responsibility and incentives to node operators. Operators now need to streamline and upgrade their operational capacity to manage the network's improved efficiency after Nakamoto. 

Following the Nakamoto upgrade, these increased incentives will play a crucial role in bringing more stackers, miners, and node operators into the Bitcoin ecosystem. As the Stacks ecosystem continues to expand and evolve, Ordinals are poised to benefit from the increased accessibility and growth of Bitcoin DeFi.

The Future of Ordinals & Nakamoto

The Nakamoto upgrade is a catalyst for a broader Bitcoin renaissance. By dramatically reducing block times, improving security, and bettering developer experiences, the upgrade catalyzes Bitcoin ecosystem. Ordinals directly stand to benefit significantly from the overall ecosystem growth.

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